All
great changes come with hidden curses, said Socrates. This proved true of the
worldwide move after World War ll away from laissez-faire to state
intervention. It is proving true again of the laissez-faire
counter-revolution that replaced it.

At the end of the war
the state was the only instrument considered capable of meeting the massive
tasks of reconstruction. Only the state, it was thought, would adopt the
social values and command the resources necessary to respond effectively to
post-war aspirations. People who had fought and endured so long wanted a
better life, a fairer share of the national output than before. Confidence in
Big Business was minimal. Images of the Great Depression, unemployment,
poverty, squalor, slums, instability, exploitation and trade wars still
burned in people's memories. It is hardly surprising that hope was
invested in the state and not the private sector and laissez-faire.

For the next three
decades the statist strategy delivered the goods. The mixed economy and
Keynesian macro-economics saw full and stable employment, more equity, rising
real wages, higher living standards and upward social mobility. Western
Europe recovered. Germany and Japan boomed.

Time and complex new
developments, however, eventually brought the fault lines in the statist
system to the surface. Regulatory bureaucracy was beginning to stifle wealth
creation. Centralised state agencies were providing special interests with
opportunities to exert disproportionate influence on public policy.
Patronage, pump-priming and privilege rather than equitable redistribution
drained the public purse and fed the national debt. Welfare programs for
legitimate social security and relief also engendered dependency. At the
extremes, states devolved into tyranny - authoritarian corruption spread in
the decolonised states and totalitarian corruption gripped the communist
empires.

The oil shocks of the
1970s accelerated inflation and turned national debt problems into crises.
Statism's capacity to produce the jobs to maintain full employment and real
wages began to falter. The spur and conditions for a counter-revolution had
arrived. Thatcherism and Reaganism registered the shift to deregulation,
privatisation, globalisation. The politico-economic strategy pendulum swung
sharply from statism to the market and from national to transnational
orientation.

Like statism the new
orthodoxy had its honeymoon period. It too began to deliver. Inflation and
deficit funding were checked. Export industries were rejuvenated. Share
markets boomed. Multinational corporations multiplied and expanded. Some
emerging Third World economies began to grow faster and diversify.

Before long, however,
the latest hidden curses began to reveal themselves. Mixed with the
energising good of the market came downsizing, structural unemployment,
falling middle class standards, a widening gap between the rich and the poor,
spreading personal and family insecurity, neglected infrastructure, threats
to national sovereignty and culture, and contagious regional financial crises
which threatened global stability.

Commanding Heights:
The battle between Government and the Marketplace that is remaking the modern
world examines these crucial changes in detail. Written by economic
analysts Daniel Yergin and Joseph Stanislaw, this 457 page book is a
celebration as well as a record and analysis of the victory so far of the
market over statism. But the book is no less credible and instructive for the
unconcealed commitment of its authors to market principles.

Yergin and Stanislaw
are respectively president and managing director of Cambridge Energy Research
Associates and board members of Global Decisions Group. CERA is described as
the foremost analytic firm in the energy industries. GDG provides economic
analyses of major global markets. Yergin has two previous international
best-selling and prize-winning books of economic history and analysis to his
credit.

Two aspects of the
book in particular make for its credibility. First, it gives a detailed
account of the altruistic reasons for the adoption of post-war statism and
its achievements. It avoids the temptation to dwell only on the limitations
and corruptions of the welfare state. Secondly, the book refuses to
adopt the old closed theory trick. It does not try to insulate liberal
economic theory from contradictory evidence. On the contrary, it states five
clear tests that the new orthodoxy must pass in order to establish its legitimacy.
Failure to do so, in the authors' view, will cause the new orthodoxy to
suffer its own counter-revolution. The book contains no trace of the
dismissive dogmatism and indifference towards the insecure and the
left-behinds that sometimes marks the advocacy of economic rationalist
true believers.

The tests which Yergin
and Stanislaw propose are:

Delivering the
goods:

If privatisation,
deregulation and the opening up of economies in the industrialised countries
to competition are seen as job-destroying rather than job creating, then
"free-market policies will surely be subject to continuous attack and
constant revision". What made both socialism and the mixed economy
and then discredited both, the authors argue, will also make or break the
commitment to markets.

Ensuring fairness:

Will the success of
the market be widely shared? Is the system proving fair and just? Or does it
disproportionately benefit the rich and the avaricious at the expense of the hardworking?
Does it treat people decently, and does it include the disenfranchised and
the disadvantaged?

Yergin and Stanislaw
believe Tony Blair's major electoral asset was his declared intention to fuse
social-democratic values of fairness and inclusion onto the Thatcherite
economic program. "Excessive concentration of wealth will under-cut the
legitimacy that a market-oriented system requires... What a market advocate
describes as 'incentives' is translated into 'greed' in the vocabulary of the
a market critic."

Upholding national
identity:

For many countries,
participation in the new global economy promotes economic growth. It brings
new technologies and diversifies opportunity. But, as the authors
acknowledge, it also "challenges the values and identities of
national and regional cultures". For example, it undermines job
security in Europe and social rules in Asia, "or indeed values about
family and co-operation, and to what the young ought to be
exposed."

Should Asian or
European companies be subjected, the authors ask, to what has been called the
'Anglo-Saxon cult of shareholder value' which would "ruthlessly cut away
what are seen in other societies as social obligations and
responsibilities."

The fourth and fifth
tests are whether private sector companies operating on laissez-faire
principles will prove capable of responding effectively to demographic and
environmental challenges - including the massive negative inheritances of the
Soviet and Chinese totalitarian state systems.

Financial market ascendancy

The swing from
government to market pre-eminence - more particularly financial market
pre-eminence - was registered in a widely-reported remark by
interventionist-inclined US President Bill Clinton when he realised that his
national executive power was shared with "the (blank) bond market".
Yergin and Stanislaw agree that America's economic policies are affected now
"not only by public opinion but also by the judgement that the financial
markets, including trillions of dollars in pension assets, made on the
probity of those policies".

The important question
is, who or what are the "financial markets"? Is their
increased influence over public policy democratic and beneficial? Or is
it disproportionate and directed more to the special interests of the rentier
class? Are the financial markets servicing and facilitating the real economy
- the role on which they base their claim to legitimacy - or are they
de-stabilising nations which are now interlocked by globalisation?

According to the more
fundamentalist of laissez-faire advocates, the financial markets are nothing
more than a widely-based unco-ordinated market response - the collective
outcome of individual judgements by countless actors in the free market,
operating rationally to the ultimate good of the productive economy through
the invisible hand. But others suspect that financial markets are more
tightly linked and more prone to the herd instinct and the latest economic
correctness than current theory would have it. Flights of capital can be
abrupt, massive, and indifferent to their catastrophic impact on whole
nations. Recently re-impoverished Indonesia provides one example. Yergin and
Stanislaw write:

"The
interconnection of financial markets, while promoting investment flows, also
makes national economies vulnerable to major shocks and turbulence that call
into question what participation in the global economy actually means.
Leaders are stunned to see how 20 or 30 per cent of a country's economic
value, built up over decades by the hard work and sacrifice of the nation,
can be destroyed in a matter of weeks..."

The danger now
"comes from the capital markets not from multinationals" in the
authors' view. When arguing that the American economy was "governed by
the bond market", New York Times financial correspondent Louis
Uchitelle described financial markets as "a loose confederation" of
bankers, financiers, money mangers, and executives of life insurance companies
and the mutual funds (International Herald Tribune, 13.6.94).
"Group-think" can be as much a factor in the actions of the
"financial markets" as the so-called autonomous, rational
competitive individual on which liberal theoretical models are based. The
London Economist (21.6.97) noted that eight financial firms hold 37 per
cent of the wholesale and investment bank market: Merrill Lynch, Chase
Manhattan, J.P. Morgan, Goldman Sachs, Morgan Stanley, First Boston, Salomon
Brothers and Lehmann Brothers. Nearly all are headquartered in Wall St.

Market versus society

Shortly after Labor's
landslide electoral victory in Britain, Prime Minister Blair told a Socialist
Conference in Sweden that nations today had no alternative but to
"modernise or die". But, he added, "if there is no
attempt to control them, market forces will threaten our very idea of
civilisation".

Former US Secretary of
State and of Treasury George Shultz echoed Blair's judgement.
"Markets are relentless", he said. In his view, people's underlying
mistrust of markets will persist. People will continue to turn to government
to provide shelter from the constant demands of the market for change. Only
so much insecurity and stress will be tolerated by those who bear the main
burden of change - especially when that change is determined by elites who
tend to be either immune from its effects or beneficiaries.

One conclusion readers may draw from Yergin and Stanislaw's book
is that it is time now for balance, pragmatism and objective discussion.
Ideological and special interest barracking for either the state or the
market leads to dissension rather than resolution. It is time to look closely
and objectively for the good and bad of both state and market and review and
improve specific policies accordingly. It is not whether the cat is black or
white but whether it catches mice.